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Income Tax Appellate Tribunal, “A” BENCH, MUMBAI
Before: SHRI PRAMOD KUMAR & SHRI PAVAN KUMAR GADALE
17/12/2020 सुनवाई क� तार�ख / Date of Hearing घोषणा क� तार�ख /Date of Pronouncement 23/12/2020 आदेश / O R D E R
PER PAVAN KUMAR GADALE - JM:
The assessee has filed an appeal against the order of Commissioner of Income Tax (Appeals) -24, Mumbai, passed u/s.143(3) and 250 of the Income Tax Act, 1961. The assessee has raised the following grounds of appeal:
1. The Ld. AO erred in incorrectly appreciating the fact that loans taken to meet day to day circulating needs of the business were neither used for giving capital advance for Asset Motors Pvt Ltd., Mumbai. - 2 - purchase of capital asset nor for acquiring any capital asset and the funds were used for funding the day to day circulating needs of the business of the appellant. The Ld. AO erred in drawing an incorrect inference that part of the funds were used for giving capital advance and further erred in disallowing interest on borrowing of Rs. 2,72,220/- in proportion of so called capital advance to total borrowings. The Ld. AO failed to appreciate the facts and worked out adhoc disallowance wrong basis.
2. The A.O further erred in not appreciating the fact that the amount of Rs. 50,64,880/- treated as capital advance in the assessment order actually represented amounts recoverable on account of VAT, Service tax, Income tax refund, TDS and Divine Consultants and no portion of the said amount was advanced towards acquiring of capital asset.
3. The AO erred in taking the figure of Rs. 58, 48,970/- as capital advance while computing the disallowance ignoring the fact that in para 4 of the assessment order the capital advance was shown at Rs. 50,64,880/- 4. It is prayed that the adhoc disallowance of interest incurred by the appellant on borrowing taken and used to fund its business requirements be deleted.
3. The brief facts of the case are that the assessee company is engaged in the business as the authorized dealers and service of Hyundai Motor Cars. The return of income was filed on 28.11.2014 for the A.Y 2014-15 disclosing a total income of Rs.(-) 2,30,36,884/-. Subsequently, the case was selected for scrutiny and notice u/s 143(2) and 142(1) of the Act along with questionnaire were issued. In compliance, the Ld. AR for the assessee appeared Asset Motors Pvt Ltd., Mumbai. - 3 - from time to time and submitted the details and the case was discussed. On perusal of financial statements, the A.O found that the assessee has made capital advances of Rs. 50, 64,880/- as on 31.03.2014. Whereas, the assessee has obtained huge borrowed funds and interest on loan funds are debited to profit and loss account. The A.O has observed that, the assessee has advanced interest free funds to its sister concerns and at the same time paying interest on borrowed funds. Therefore, the A.O is of the opinion that the proportionate interest amount considering the advances and the interest on the borrowed funds has to be disallowed and accordingly made disallowance u/s 36(1)(iii) of the Act of Rs. 2,72,220/- and assessed the total income of Rs.(-) 2,27,64,664/- and passed the order u/s 143(3) of the Act on 28.11.2016. Aggrieved by the order, the assessee has filed an appeal with the CIT(A), whereas the CIT(A) concord with the action of the A.O and dismissed the appeal. Aggrieved by the CIT(A) order, the assessee has filed an appeal with the Tribunal.
3. At the time of hearing the Ld. AR submitted that the Ld. CIT(A) has erred in confirming the Asset Motors Pvt Ltd., Mumbai. - 4 - disallowance made by the A.O irrespective of the fact that the assessee has surplus funds and the advances referred in the balance sheet pertains to VAT and Service Tax, TDS etc. Further the Ld.AR substantiated his arguments with evidences in the paper book and prayed for allowing the appeal. Contra, the Ld. DR supported the orders of the CIT(A).
We have heard the rival submissions and perused the material on record. The sole matrix of the disputed issue is with respect to disallowance of proportionate interest by the A.O considering the capital advances provided by the assessee. The contentions of the Ld.AR are that, the advances does not pertains to sister concerns but the balance with government authorities. The Ld. AR referred to the page 12 of the paper book and explained the assessee’s long term capital borrowings. Further, the Ld.AR demonstrated that the capital advances considered by the A.O. are not advances made to sister concerns and referred to note 15 of the financial statements at page 22 of the paper book. We find, out of total amount of Rs.50,64,880/- Asset Motors Pvt Ltd., Mumbai. - 5 - disclosed under short term loans and advances in the note to financial accounts, the amount of Rs 47,11,874/- pertains to VAT, service tax, TDS and income tax refund receivables. Whereas the A.O is of the opinion that these are the advances provided to sister concerns. We considering the submissions of the Ld. AR are of the view that, the advances disclosed in the financial statements are with the statutory authorities and the action of the A.O to disallow proportionate interest considering such advances is not acceptable. Accordingly, we set aside the order of the CIT(A) and direct the Assessing officer to delete the addition and allow the grounds of appeal in favour of the assessee.
In the result, the appeal filed by the assessee is allowed .
Order pronounced in the open court on 23.12.2020 Sd/- Sd/- (PRAMOD KUMAR) (PAVAN KUMAR GADALE ) VICE PRESIDENT JUDICIAL MEMBER Mumbai, Dated 23/12/2020 Asset Motors Pvt Ltd., Mumbai. - 6 - KRK, PS आदेश क� ��त�ल�प अ�े�षत/Copy of the Order forwarded to : 1. अपीलाथ� / The Appellant 2. ��यथ� / The Respondent. 3. संबं�धत आयकर आयु�त / The CIT(A) 4. आयकर आयु�त(अपील) / Concerned CIT �वभागीय ��त�न�ध, आयकर अपील�य अ�धकरण, अहमदाबाद / DR, ITAT, Mumbai 5. 6. गाड� फाईल / Guard file. आदेशानुसार/ BY ORDER, स�या�पत ��त //True Copy// 1. उप/सहायक पंजीकार ( Asst. Registrar) आयकर अपील�य अ�धकरण, अहमदाबाद / ITAT, Mumbai Asset Motors Pvt Ltd., Mumbai. - 7 -
Initial Date 1. Draft dictated on 18.12.2020 PS 2. Draft placed before author 21.12.2020 PS
Draft proposed & placed PS before the second member 4. Draft discussed/approved by PS Second Member. 5. Approved Draft comes to the PS Sr.PS/PS 6. Kept for pronouncement on 7. File sent to the Bench Clerk 8. Date on which file goes to the AR 9. Date on which file goes to the Head Clerk. 10. Date of dispatch of Order. 11. Dictation Pad is enclosed 2. Other Member… on which the